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In light of the economic turbulence following Donald Trump’s Liberation Day yesterday, the CI GAM investment team has provided key insights on what transpired and potential implications going forward.

Summary: Navigating the U.S. Trade War

The U.S. has announced broad reciprocal tariffs under the International Emergency Economic Powers Act (IEEPA), citing the persistent trade deficit as a national emergency. Starting April 5, a 10% baseline tariff applies to all imports, with higher tariffs from April 9 on countries which the U.S. has a large trade deficit—including China (54%) (a 34% increase on top of an existing 20% tariff), Vietnam (46%), and the EU (20%). Canada and Mexico are not subject to the new reciprocal tariffs but remain under a separate IEEPA order, facing 25% tariffs on all non-USMCA-compliant exports, plus existing steel, aluminum, and auto tariffs.

Economic Impact & Outlook

U.S.: The average tariff rate will exceed 20%, a level not seen since the early 1900s. Tariffs will disrupt supply chains, increase inflation, lower real income growth, and reduce consumer spending. U.S. businesses have front-loaded imports ahead of the tariffs, boosting Q1 GDP but setting up a potential slowdown later. Consumer sentiment has already deteriorated due to trade uncertainty, and spending growth has slowed sharply.

Canada: Exports surged in Q1, increasing Canada’s trade surplus with the U.S. However, uncertainty is suppressing business investment, with nearly 50% of firms cutting capital expenditures. A slowdown is expected in Q2 as exports pull back. The Bank of Canada is unlikely to counteract tariff-related inflation with aggressive rate cuts.

Global: Other countries may retaliate, exacerbating market instability and economic slowdown risks. The U.S. executive order states that any retaliation could result in even higher U.S. tariffs.

Investment Considerations:

Investors should take a long-term approach, balancing capital protection with identifying opportunities amid economic adjustments. The next few months will determine whether tariffs escalate or de-escalate.

Yesterday we attended the Mackenzie Investments 2024 Fall Due Diligence conference at Whistle Bear Golf Club, where portfolio managers and investment experts shared their insights into current market trends and discussed opportunities to help our clients navigate the road ahead.

Economic resilience in the US has so far supported investment growth. But volatility remains a factor, and lower growth rates are anticipated. Whatever may arise, our clients are best served by remaining in the market.